I do not wish to repeat what I said regarding the Supreme Court decision except to develop the point that the Government should have taken a stance on the matter, that there was a principle involved other than the principle of a social character which was involved in the decision by the court. Anyone can take any view he likes on the question of proper treatment in regard to the taxation of the incomes of married persons. The really important issue in this was that, in relation to the raising of finance for the discharge of the public business of this country, five gentlemen of the Supreme Court with a particular training in law and in law only—it is an accident and a happy accident if they are qualified in any other field, but all they are required to know is law—should have been in a position of intervening in the manner in which they intervened without the apparatus that they clearly have not got in the matter of decisions as to what was socially right and socially wrong in the taxation system which the people, through their representatives, chose. Therefore, far from going along with the Supreme Court as the Government did, they stretched their decision away out into other arenas, whereas their finding and judgment related solely to the taxation of the earnings of married couples.
More than those with earnings are treated in the budget and get benefits from the budget. I will naturally have to deal with the budget in terms of its economic and financial consequences but I should have thought that, whatever the Government's wisdom might have been as to the proper treatment of this social problem, they should have taken a stance with regard to the Supreme Court to give it every opportunity of becoming aware of the view of the Government and the view of the Members of this House and of the other House, whose job it is to decide how to raise taxation, who are a body of persons who are in a position to get for themselves experts in this field and to inform themselves fully of all the responsibilities of the Government in relation to the management of finances.
Whatever way this could be done it should of course be done with appropriate dignity and I would expect it would be so done. There are a whole series in my mind. I would have had no difficulty at all in seeing a half dozen different ways whereby the matter could have gone shooting back to the Supreme Court in one way or another, making it clear to them that there was a matter of contention here where the decision on an Article—an Article which requires a great deal of straining of thought in regard to its being drawn into the taxation field—muddled up the affairs of this country. We have been told by the Minister that as a result of this decision and because of an extension of it there has been an additional deficit of £220 million which we have to borrow this year. Be they right or be they wrong there are at least a substantial number of informed people in this country who think that the deficit we are faced with at the moment is already too large. That it would be too large to the extent of £220 million due in any part to the decisions of the Supreme Court is in itself a very serious matter. But it is a Government error if the decision has been extended into areas into which it does not have to extend.
In his introductory speech in the other House the Minister—and with great respect to him, this slightly nauseates me in the light of the further facts I have to give—said that we must all ensure that this new burden, unwelcome though it may be, will be shouldered evenly by all who can bear it, that collective community commitment and the action of all sections of the community are required and that these must be built on the firm foundation of a caring and sharing society. In some sort of way, if I were going to propose what is in this Bill, I would not have used those words. I start with the matter of who is paying what. There are people who would think it would be more prudent for me not to bring out the points that I now want to make clearly, that these points might be divisive of our society. We are in a free society and if we do not behave like free men it will not long survive as a free society. If we think that our slaves will not be listening to our conversation at dinner we are much mistaken or if we think that there are truths about these matters that will not become known, we are much mistaken. It is very important that these points be brought out by people like ourselves so that we know what we are doing.
I begin with figures from what is a private document though it comes from an institute that any one could join. However, I think you will accept it from me that these figures were prepared by an expert. I rely on them as being accurate. I shall take the case of a married couple without children and both earning equal salaries. At £20,000 a year, they will be paying, as a result of this budget, a tax of £6,734. In the year which has just ended they would have been paying a tax of £9,064. Where they had £10,936 left they will now have, as a result of the simple direct operation of the income tax propositions, £13,266 or a net additional purchasing or saving power of £2,330.
It does not end there. Before this they could have spent £450 on improving and maintaining their house but that allowance is now, by virtue of the dictates of justice, increased to £900. Instead of getting a relief of 60 per cent of £450, the couple will have not merely 60 per cent of £450 to claim but 60 per cent of another £450 which is £270. In addition to that, the limit on insurance in such a case has risen from £1,000 to £2,000 and I am taking a more conservative type of insurance policy in saying that they are allowed relief only at a half and not two-thirds. That gives them an additional £300. If they had a little money to play around with, if by any chance they had a picture on which they could make a capital gain, they could be tax free now on a capital gain of £1,000 instead of the previous figure of £500. Therefore, if you add £500, £300, £270 and £2,330 you get a figure of £3,400. That is the gain on the previous position. But in addition to that they are allowed to borrow an additional £2,400 and get full tax relief on it.
That relief will give them an extra £1,440 which brings it to £4,800. I am taking that £1,400 as an 18½ per cent interest charge on a personal borrower—the figure is £12,800—but one might ask why they should pay additional interest if they did not have to. First, perhaps they had to because of that being the level of the debt they were in. That would be the kind of situation which I think should be treated. But there are many people who are not in the position of being so burdened with mortgage interest and if anybody being so burdened without mortgage interest can be dealt with in the UK model where the amount of interest allowed is related to a house mortgage, the amount of the mortgage being specified, it may be assumed that if they do not have an existing debt of this order, the money they borrow from their bank at 18½ per cent will not be left idle. They do not have to be well-informed to know that they can give it to somebody who manages Irish gilts which bring in 15 per cent profit on the £12,800 free of all tax. According to my calculations on that, there is a total of reduced taxation and additional income of £6,720. To put it in a manner more favourable to the Minister, one could say that the only figure you should net to the £3,400 is the difference between the cost of the money at 18½ per cent and the return on the money at 15 per cent, which would be the net benefit to the taxpayer. That net benefit would be an additional £480, leaving a net additional benefit of £3,880.
Taking the view more favourable to the Minister on this, at a gain of £3,880 the taxpayer has now more than 35 per cent left in his hands, spendable in the sense of being invested in insurance savings or in improvements to his house. However, the gross figure should be taken because the Revenue do not get anything on the £1,920 that is made on the operation. Has anybody calculated what is the true cost of domestic borrowing in a gilt market where substantial sums are invested short-term by people who are not subject to any capital gains tax? It is the practice in dealing with corporations that they will be subjected to corporation tax but how many others avail of capital gains tax free, not being in any way liable either to corporation tax or to income tax?
Another point to which people's attention has not been drawn in relation to the treatment of the tax on people with high earnings is that for a long time a very low sum was allowed for deduction from tax in relation to people who had to provide for their own pensions. It was about £500 per year and then it rose to £3,000 or to 15 per cent of the relevant earnings. In 1978 the ceiling of £3,000 was removed so that now a man with net relevant earnings of £50,000 will have all that I have given by way of additional benefits, but he will have also the tax on the difference between the £3,000 and the 15 per cent, and the 15 per cent of the relevant earnings of £50,000 is £7,500. He gets complete tax relief of 60 per cent on the difference between the ceiling which was there and the ceiling which was abolished, which should be 60 per cent of £4,500 and which is £2,700.
That particular superannuation scheme may explain to some people why it is that certain characters take such large sums by way of earnings from their accounts because it is only their earnings which will count for this superannuation contribution and the superannuation contribution is on the basis that it contains an unidentified insurance element. The basis of it is that you pay your premium and deduct the premium from your income tax account. You do not have to do the same the following year though if you wish to do so, that is possible. If the insured dies before attaining the age for which the pension is taken, all the premiums are repayable. In the meantime there has been a saving in terms of tax of 60 per cent on each of them. But if one survives and takes a quarter of all that has been paid in, one can opt for himself or for himself and his wife in actuarial tables but one will be guaranteed that pension for a period of five years as well.
It may be said that the structure of our tax system is such that a consequence of giving allowances is always to benefit those who have high incomes. The consequence of giving allowances when you have a progressive tax system is to give most to the most but we need not be doing it in the allowance way. There are other ways for doing this. How can we say that this new burden, unwelcome though it may be, will be shouldered evenly? The facts are that people with high earnings will be enjoying net earnings substantially greater than the total cost of anything that is being taxed in this Bill. Their discretionary payments will be very considerably increased.
Another matter I have not mentioned because it is not a matter which flows directly from the budget but one that we must take account of, is the fact that up to 1977 any of the pairs I have referred to would have been paying tax to the authority concerned in respect of sewage, of the collection of refuse and of the provision of water and all the other services which go into accommodation which is occupied tax free. Such a man as would be in the order of income to which I have referred would be saved £600 to £800 a year in this respect. That is a very considerable addition and of course capital taxation, except in rare enough kinds of cases has more or less disappeared. This is very much more than cosmetics. If we are really concerned to get from everyone a general social commitment which is genuinely based on everyone knowing the truth about these things then these matters will have to be rectified.
My main criticism of the budget is very simply expressed. I do not think that this year anyone should have heard news from the Minister for Finance which was good news for him in the sense only that he was entitled to have any injustice done to him put right. There should not have been people who walked out of Leinster House or who read their papers that day or the following day and who felt better off. The people who are better off are crucially important people in this community. They are communicators. They are key advisers to well off people. They are executives. They are politicians. It does not get into them what ought to be got into them, that is, a sense of the urgency of our situation and a sense of the need for real satisfaction and not hollow mouthings about it.
I do not know whether it can be taken as agreed that what I have said is unnecessarily stark, that the budget deficit is too big. Despite the cuts in the expenditure which preceded the presentation of the Estimates—that seemed to me to be a genuine operation—I recognise the great difficulties in costing public expenditure but budgetary deficits come from two sides. They come from cutting expenditure. They also come from taxation adjustments. We have been told that the cost of the taxation adjustments is of the order of £220 million. I do not think we need worry about a couple of million here or there but it seems to be universally accepted that the budget was over-financed by deficit. The Minister must have read what has been said. He has referred to the very real international difficulties, to the oil price rise and to the trade depression which seems to be gathering. The Iran events did not occur until the autumn of 1978 and there were warnings to the Minister long before the autumn 1978. The Central Bank went further than I had seen them go for very many years and said of the budget that when one allows for the expected receipt of delayed revenue for 1979, the underlying reduction in the deficit was not as great as it might appear. The report continued:
There is a reduction sufficient to make an appreciable impact on the current account of the balance of payments. This year, as in 1979, fiscal policy is geared implicitly more towards financing than adjusting the balance of payments.
It then goes on:
The longer adjustment policies are deferred the more stringent they must be ultimately. It can no longer be assumed that time is on our side. Fiscal disposition this year must be adhered to, particularly in relation to pay so that there is no slippage as the year progresses. As for the future deficit, decisive measures are to be taken to eliminate the current budget deficit and reduce the relative size of the overall Exchequer borrowing requirement, thereby helping to achieve the necessary adjustment of the external deficit.
So much for what the Central Bank said this year. I will just take one sentence or so from the ESRI Report:
The stance of fiscal and monetary policy for 1980 is now determined. As a consequence the level of the balance of payments deficit will remain higher than is desirable.
The Irish Banking Review said:
The sharp rise in the public current spending financed by deficits was inappropriate for achieving full employment at a time when other pressures were working against the full employment objective. Expanding public spending through deficit budgets provides no substitute for a falling off in demand induced by deterioration in cost competitiveness in the private sector. The result is simply that a large part of the expansion of demand is spent on imports rather than on domestic products. Such a policy also renders the economy vulnerable to any external shock, such as was provided by the onset of further oil price problems in 1979 following the political turmoil in Iran. This event helped to depress domestic activity and it added to inflation.
The Cooper and Lybrandt report makes an interesting comment in regard to the payers of this deficit:
It appears that the credit guidelines takes into account the governmental public sector borrowing as an element in deciding how much credit is to be made available to the private sector. The more available to the public sector the less available to the private sector.
Everybody is running his own business around the country, be it a small one, a medium size one or a large one, and that is what we are talking about. We are not talking about monstrous capitalist institutions. We are talking about the people who have to work on their own and take care of their own affairs. They are in large the producers of the goods and services from which this economy is sustained. The Cooper and Lybrandt report states:
In the year since last February personal credit expanded by 10 per cent according to preliminary estimates of the central Bank. This year a limit of 6 per cent has been prescribed by the Bank. Allowing for the rate of inflation in consumer prices and the increase in interest rates last year and this year the result was a sharp decline in the real value of consumer credit in 1979 and 1980. However, whereas last year the decline in the volume of personal bank lending might be estimated at 7 per cent in the current year the decline is likely to be twice as great as last year was, or about 15 per cent.
I regret very much that the new Taoiseach and the new Minister for Finance—I am glad to welcome him to the House, this being the first time he has been here when I have been here—did not look into this problem and try to phase in a solution. The matter is very serious, as the Central Bank Report makes very evident. The minimum necessary tax concession should have been given, such concessions as were all part and parcel of the 15th national wage agreement. No concession should have been conceded which would make people feel in any way more comfortable about the situation.
The Central Bank, at the beginning of the report, states:
If a position were to be reached ultimately in which Ireland had to resort to official international financial agencies, credit would in all probability be conditional on the implementation of severe economic policies. The adjustment of the economy would be more rapid than need have been the case if appropriate measures had been taken earlier. Prudence alone would suggest that such a situation should be avoided. Our second obvious drawback associated with the rising level of external debt is the resulting increase in debt service obligations. Overtime, higher interest payments, pre-empt a greater share of borrowing and consequentially reduce the the net addition to available resources. An alternative way of putting this is that borrowing, while alleviating the effects of the balance of payments deficit in the short term, tends in the longer run to exacerbate the problem because payments in respect of interest charges increase the current account deficit. Interest payments this year on official external debts are expected to amount to some 14 per cent of the level of external reserves in the banking system.
How did this unhappy position come about? It is all very well grasping nettles but the nettle of the Supreme Court decision is as nothing compared to the nettle of getting this deficit right. There was time for a long dispute to go on between the Executive and Legislature and the Supreme Court. There was no need, it was an error and a weakness. It showed a lack of strength not to resist as much as prudently possible the implications of that decision, and pay damn little attention to the super tax revolt, because who pays for these reliefs in income tax but the people who have not incomes to be taxed?
It is regretably easy enough to see how the situation the Minister was faced with arose. It is for me a matter that the public ought to note in making its judgments of the qualities of the men involved to note that there was not decisiveness shown in solving the fiscal problems of this country at this time.
If this budget were better balanced there would have been that much more in times of real need and international recession to be phased into the private sector, money which would be better used for employment and productive pursuits and which would mark the fact that there was something like a change of Government taking place rather than a pretence. Someone wrote a verse at the time of the 1929 crisis on the day the £ fell out of bed, and he reconciled himself with the thought, as he crooned over the piano: "All the rich, the very rich, this very year will miss the Riviera and champagne," and that gave him great comfort. The rich, the very rich, this very year will not miss the Riviera and champagne as a result of this budget, and they ought to.
It is an interesting thesis for a student of political science to examine the genesis of the Fianna Fáil manifesto—it is the first time I have used the magic words "Fianna Fáil" in the House for a long time—the genesis of the Fianna Fáil manifesto, its first and second drafts, its third draft, how it finally got stuck in the gullet of the Irish people, Incidentally, has any of you over there got a copy of it? I was looking for one and I thought I could be still more unpleasant if I had a copy, and I thought I could be helped by asking someone on the Fianna Fáil benches to lend me one of their copies. Do not tell me that none of them has a copy of the economic miracle. This is absolutely extraordinary.
